EFFECT OF BOARD COMPENSATION ON THE RELEVANCE OF FAIR VALUE-BASED FINANCIAL REPORTING

Abstract

The aim of this Article is to inquire into the effect of the compensation board on the value relevance of the fair value accounting information of the organization. To evaluate the hypotheses, a sample of 55 observations is used, comprising the financial data of 11 Iraqi banks from 2015 to 2019 and a modified model from Ohlson (1995). The findings indicate that the level of rewards offered by the Board offers a strong motivation for managers to reveal their inside information in financial statements, resulting in a higher significance of the value of information reported using fair value accounting. The findings also show that this constructive encouragement extends only to the equal value of Level 2, where there is still a competitive market price, as there is no information on the selling price of a component of equity, managers try to influence the market value of the Fair Value Level 3 data , which results in less relevance of fair value. The findings contribute to enhance understanding of management incentive schemes (board compensation) for the determination of fair values. It adds to the debate by presenting proof of how the compensation board plays an important role as a moderating variable in the market value of corporations using fair value.